Strategy 1 Flashcards
(75 cards)
1
Q
What is a Stakeholder?
A
A stakeholder refers to persons or groups that affect or are affected by an organization’s decisions, policies, and operations
2
Q
What are the two categories of Stakeholders, and what are they?
A
- Market/Primary stakeholders,
Market stakeholders are those that engage in economic transactions
with the company as it carries out its primary purpose of providing society with goods and services
- Nonmarket/Secondary stakeholders
Nonmarket stakeholders are people or groups who—although they do not engage in direct economic exchange with the firm—are
affected by or can affect its actions
3
Q
What are the three main stakeholder groups?
A
- Owners
- Customers
- Employees
4
Q
What are the parts of stakeholder analysis?
A
- Who are the relevant stakeholders?
- What are the interests of each stakeholder?
- How much power does each stakeholder have?
- How are coalitions between stakeholders likely to form
5
Q
What is strategy?
A
Strategy is a plan of action or policy designed to achieve a major or overall aim.
“An integrated and coordinated set of commitments and actions designed to
explore core competencies and gain a competitive advantage”
6
Q
Why is strategy helpful?
A
Strategy helps understand why some industries are very attractive (profitable), and some are not.
Helps explain why within industries there is a lot of variance between firms in terms of profitability.
Helps explain the reason for variance within the same industry, in different geographical areas etc.
7
Q
What are the different levels of strategy?
A
Business level strategy
How to compete/position the firm in a given product market
Competitive strategy
Actions and responses to competition
Corporate strategy
Expand scope of the firm on products or geographic markets
International strategy
How to expand and compete across borders
All intertwined and all aimed at
(1) achieving and sustaining a competitive advantage
(2) earning above average returns (performance)
8
Q
What does the external environment consist of?
A
General environment
- Globalization, logistics, capital, technology, knowledge, innovation, speed, …
Industry environment
- But how to define an industry? Boundaries increasingly blurred and fluid
Competitor environment
- Permanent change
9
Q
What do firms consist of?
A
- Resources,
Physical, human, and
organizational capital
(tangible and intangible) - Capabilities
Integrated sets of
resources
-Core competencies
Sources of
competitive
advantages
10
Q
What are the two main views on earning AAR’s?
A
Industrial organization (I/O) external perspective
Resource based view (RBV) internal perspective
11
Q
What is the I/O-model?
A
External environment has a
decisive influence (5 forces)
12
Q
What is the RBV-model?
A
Internal resources and capabilities
are decisive to earn AARs (VRCN)
13
Q
Why do we perform an external analysis?
A
The objective of studying the external environment is to identify:
Opportunities
-General environment conditions that, if exploited, help a company achieve strategic competitiveness
Threats
-General environment conditions that may hinder a company’s efforts to achieve strategic competitiveness
These are two essential inputs in a swOT analysis
14
Q
What are the three levels of an external analysis?
A
- General environment
- Competitor environment
- Industry environment
15
Q
What are the segments of general enviroment?
A
The 7 segments
- Demographic segment
- Population size, age structure, geographic and income distributions, etc. - Economic segment
- Inflation, savings & interest rates, GDP, trade and budget deficits, etc. - Political/legal segment
- Antitrust, tax and labor laws, deregulation, etc. - Socio-cultural segment
- Women and diversity in the workforce, environmental concerns, products,
service & career preferences, etc. - Technological segment
- Innovations, private vs government R&D, knowledge applications, etc. - Global segment
- Cultural and institutional attributes, political events, global markets, etc. - Physical segment (environmental)
- Ecological system
16
Q
What are the segments of competitor environment?
A
Five-forces model - is conducted for the AVARAGE firm in the industry
- Threat of new entrants
- Bargaining power of suppliers
- Bargaining power of buyers
- Threat of substitute products or services
- Intensity of rivalry among competitors
17
Q
What are the segments of Industry environment?
A
Porters 5 forces:
- Bargaining power of suppliers
- Bargaining power of buyers
- Threat of new entrants
- Threat of substitutes
- Rivalry among competitors
18
Q
What are the different types of competitors?
A
Direct- and indirect competitors
19
Q
What are the 4 aspects of competitor analysis?
A
What drives competitors (future objectives)
What the competitor is doing and can do (current strategy)
What the competitor believes about the industry (assumptions)
What the competitor’s capabilities are (strengths and weaknesses)
These 4 aspects determine a competitors response.
20
Q
What are the aspects of the general environment?
A
- Physical
- Sociocultural
- Global
- Technological
- Political/Legal
- Demographic
- Economic
21
Q
What is business level strategy? What are the different questions to determine business level strategy?
A
How to position yourself in in each market/business you compete in? WHO-WHAT-HOW
22
Q
What are the five different business level strategies?
A
Cost leadership, Differentiation, Focused cost leadership , Focused differentiation, Integrated cost leadership/differentiation
23
Q
Describe the cost leadership strategy.
A
Produce or deliver goods or services with features that are acceptable to customers at the lowest cost (relative to competitors)
Competitive advantage
* The low-cost leader and operates with margins greater than competitors
Competitive scope * Broad
No-frill, standardized goods
Continuously reduce costs of value chain activities
24
Q
What are the three stages of economies of scale?
A
Economies of scale, content returns to scale, diseconomies of scale. The cost per unit decreases in the first step, is stable in the second and increases in the third
25
What are learning and experience curves?
the cost per unit goes down as cumulative output increases. AKA cost per unit goes down as experience and learning increases.
26
Name the value creating activities (value chain analysis)
- Support functions such as finance, HR and management informations systems
- Value chain activities- supply chain management, operations, distribution, marketing and sales, followup service
27
Name some risks of the business level cost leadership
Source of cost advantage becomes obsolete
Cost focus may lead to overlooking important customer preferences
Imitation
28
Describe the differentiation strategy
Produce or deliver goods or services at an acceptable cost that customers perceive as being different in ways that are important to them
Competitive advantage
- Differentiation
Competitive scope * Broad
Target customers perceive product value
29
Name some ways of increasing value through diffrentiation.
* Product features
* Customer service
* Complements / bundles
30
Name some risks of the differentiation strategy
- Customers determine that the cost of differentiation is too great
- The means of differentiation may cease to provide value for which customers are willing to pay
- Experience can narrow customers’ perceptions of the value of a product’s differentiated features
-Over-differentiation leading to no market
- Counterfeiting
31
How does the "focused" differentiation strategies differ from the non-focused ones.
There are two “focus” strategies (narrow)
- Focused Cost Leadership strategy
- Focused Differentiation strategy
Why focus on a particular segment or niche?
* May lack resources to compete in the broader market
* May serve more effectively a narrow market segment than larger competitors * Large firms may overlook small niches / specific needs
32
Describe the focused cost leadership strategy
Competitive advantage
- Low-cost
(see broad cost leadership strategy discussion)
Competitive scope
- Narrow industry segment
33
Describe focused differentiation strategy
Competitive advantage
- Differentiation
(see broad differentiation strategy discussion)
Competitive scope
- Narrow industry segment
34
Discuss the risks of the "focused" strategies
- A competitor may be able to focus on a more narrowly defined competitive segment and ”outfocus” the focuser
- A company competing on an industry-wide basis may decide that the market segment served by the focus strategy firm is attractive and worthy of pursuit
- Customer needs within a narrow competitive segment may become more similar to those of industry-wide customers as a whole
- Plus the risks associated with cost leadership or differentiation strategies discussed for the broad strategies
35
Describe the integrated cost leadership/differentiation strategy
Efficiently produce goods/services with differentiated attributes
- Efficiency: Sources of low cost
- Differentiation: Source of unique value
Simultaneously concentrate on TWO sources of competitive advantage
-Cost and differentiation
Must be competent in many primary and support activities and flexible
36
What are the risks of integrated strategies?
Integrated CL/differentiation strategy is increasingly popular but the risk is getting ‘stuck in the middle’
- Cost structure is not low enough for attractive pricing of products and products not sufficiently differentiated to create value for target customer
Result: The company does not earn above-average returns (AARs)
37
Connect cost leadership (BL) with the 5 forces of competition.
Rivalry
* Rivals hesitate to compete on the basis of price
Bargaining Power of Buyers
* Powerful customers can demand reduced prices but may drive competitors out of business leaving the cost leader with monopoly
Bargaining Power of Suppliers
* Absorb supplier price increases
* Force suppliers to hold down their prices (due to volume
Risk of new entrants
* Continuously improving levels of efficiency and cost reduction serve as entry barriers
Product Substitutes
* Flexibility to lower prices to retain customers
38
Connect differentiation (BL) with the 5 forces of competition.
Rivalry
* Customers are loyal purchasers of differentiated products
Bargaining Power of Buyers
* Inverse relationship between loyalty and price: As loyalty increases, price sensitivity decreases
Bargaining Power of Suppliers
* Provide high quality components, driving up firm’s costs
* Cost may be passed on to customer
Risk of new Entrants
* Substantial barriers (due to loyalty) and would require
significant resources and investments
Product Substitutes
* Customer loyalty effectively positions firm against product substitutes
39
Describe the blue ocean strategy
Existing markets: Red Oceans
* Companies try to outperform rivals, get bigger
slice of existing demand
* Space gets increasingly crowded- profit and growth prospects shrink
* More intense competition “turns the water
bloody”
* Align the whole system of a company’s activities with strategic choice of differentiation OR low cost
New markets: Blue Oceans
* Uncontested market spaces
* Invent and capture new demand-competition
is irrelevant
* Offer customers leap in value while streamlining
costs
* High profits and fast growth
* Align the whole system of a company’s activities in pursuit of differentiation AND low cost
40
How to evaluate the threat of new entrants? (5 forces of competition)
1. Threat of new entrants
Function of 2 factors
Nr 1. Barriers to entry
* Economies of scale
* Product differentiation
* Capital requirements
* Switching costs
* Access to distribution channels
* Cost disadvantages independent of scale * Government policy
Nr. 2. Expected retaliation
41
How to evaluate the bargaining power of suppliers? (5 forces of competition)
They are powerful when
* Few large companies and more concentrated than industry they sell to
* No substitutes
* Industry firms not significant customer to suppliers
* Supplier’s goods are critical to buyer’s success
* High switching costs due to effectiveness of supplier’s products * Threat of forward integration
42
How to evaluate the bargaining power of buyers? (5 forces of competition)
They are powerful when
* Purchase large portion of industry’s total output
* Product sales accounts for significant seller annual revenue * Low switching costs (to other industry product)
* Industry products are undifferentiated or standardized
* Threat of backward integration
43
How to evaluate the intensity of rivalry among competitors? ( 5 forces of competition)
Numerous or equally balanced competitors
Slow industry growth
High fixed costs or high storage costs
Lack of differentiation or low switching costs High strategic stakes
High exit barriers
44
Is a bigger company always better?
We cannot think about positioning without considering how competitors will respond -Competitive dynamics
Growth only makes sense with sufficient CCs to exploit and defend, or if there are other clear growth benefits (network effects/winner-take-it all markets, economies of scale)
Do not pursue growth blindly, instead build on strengths and look for opportunities to exploit these strengths
Bigger in many cases can mean less profitability and less survival chances
The bigger the company is, the harder it is for it to change
45
Describe the competitive rivalry model
1. Competitor analysis
2. Drivers of competitive behavior
3. Competitive rivalry
4. Outcomes
(sess 5)
46
What should be considered in the competitive analysis?
- Market commonality
- Resource similarity
47
What are the drivers of competitive behavior? And what is it?
- Awareness
- Motivation
- Ability
(Set of competitive actions and competitive responses the firm takes to build or defend its
Competitive Behavior- competitive advantages and to improve its market position
Through competitive behavior the firm tries to position itself successfully relative to the 5 forces and to defend current competitive advantages while building advantages for the future)
48
Describe how to evaluate the competitive rivalry
1. Likelihood of attack
- First mover benefits
- Organizational size
- Quality
2. Likelihood of response
- Type of competitive action
- Firms reputation
- Dependence on the market
(Ongoing set of competitive actions and competitive responses occurring between competitors
as they contend with each other for an advantageous market position)
49
What is the framework of competitor analysis?
Market commonality and resource similarity
50
Does market commonality increase or decrease propensity to attack competitors?
Less propensity to attack competitors (e.g., through aggressive pricing, innovation etc.)
due to fear of counterattacks in other important markets
BUT
MMC increases likelihood of responses to competitive actions
51
Discuss some possible effects of multi market contact (MMC)
1. Some competitive actions may be curbed / controlled more by MMC than others e.g., promotions vs ground-breaking innovation (new technology for industry dominance)
2. MMC may lead to worse service quality Airline industry
Few investments in quality when there is high MMC as these may induce rivals to respond with price cuts or service improvements in other markets
3. Mutual forbearance depends on full observability and effective internal coordination. This so that competitors have AWARENESS over each others actions. Otherwise violations can go undetected.
4. The desire to maintain competitive parity and ensure mutual forbearance has caused MNCs to pursue similar international expansion patterns
- There is a link between corporate level strategy (diversification) and MMC (relatively understudied, but important)
5. MMC can have a reduced effect on Mutual forbearance in international settings. This due to cultural differences between markets, presence of domestic competitors, government regulations etc.
52
What are the two types of competitive actions/responses?
Strategic action/response
Tactical action/response
53
How to take competitors response into consideration in the strategic decision making process?
1. Will the competitor(s) react at all?
- Awareness-motivation-ability?
- Will they be threatened?
- Will responding be a priority?
- Will they overcome internal inertia? (tröghet)
2. What options will the competitor actively consider?
- Research shows median number of options actively considered is between 2 and 3
- Most common response considered is “me too” product matching or price change
- Heavily influenced by how they responded last time when they faced similar attack- look at track records!
3. Which option will the competitor most likely choose?
- How many moves ahead does the competitor consider?
- About 35% of managers only look at one round of responses
- What metrics does the competitor use?
- Long-term vs short-term measure of cost and benefits of responses
- Studying past behavior and preferences provides insights into future reactions
54
Mention some obstacles one needs to take into consideration when evaluating a competitors possible response.
- Misreading actions of competitors, could trigger reactions when not necessary
-Limited information on competitor actions (e.g., they may be offering other benefits instead of lowering the price)
-Volatility of demand
(e.g., hard to assess if a drop in sales results from a competitor price cut or demand volatility)
- Collecting information on competitor moves and behavior must be done in an ethical and legal way
55
Describe the pristoners dilemma
ex. no advertising can benefit both firms more, but both chose to advertise-leading to lower pay-offs because if they do not advertise and the competitor choses to advertise, they are worse off.
56
What is a dominated strategy?
A strategy is dominated if there is some other strategy that is always better.
57
How can players avoid the pristoners dilemma?
By coordinating their game- coordinate their decisions that leads to the best output for all of them. However this can often be illegal (collusion, price fixing)
58
What are the three levels of external environment?
General environment
Industry environment
Competitor environment
59
What does the SWOT analysis consist of?
Strengths
Weaknesses
Opportunities
Threats
SW- Internal
OT- External
60
What is a VRCN analysis?
An analysis to determine core competencies.
Valuable
Rare
Costly to imitate
Non-substitutable
Competitive consequences- disadvantage, parity, temporary advantage, sustained advantage
Performance implications- BAR/AR/AAR?
61
What is corporate level strategy
Corporate level strategy consists of three levels:
Vertical integration- Become ones own supplier, handles deliveries within companies
Business diversification/Horizontal expansion- Enter new markets, expand product portfolio
Geographical/international expansion-
62
What are the 5 different corporate level strategies?
Low levels of diversification:
1. Single business, 95% or more of all revenue comes from one business
2. Dominant business, 70-95% of all revenue comes from one business
Moderate to high levels of diversification:
3. Related constrained, less than 70% of revenue comes from one business, all businesses share business activities ex. product, technological and distribution linkages
4. Related linked, less than 70% of revenue comes from one business, some business share business activities ex. product, technological and distribution linkages
Very high levels of diversification
5. Conglomerate/ unrelated, less than 70% of revenue comes from one company, none of businesses share their activities.
63
What are the motives for diversification
Economies of scope
- Sharing activities ex. market
- Transferring core competencies
Market power
- Blocking competitors through MMC
- Vertical integration
Financial economies
- Efficient internal capital allocation
- Business restructuring
64
What are the factors determining transaction costs
Behavioral assumptions
- Bounded rationality
- Opportunism
Transaction characteristics
- Frequency
- Uncertainty
- Asset specificity- site, physical or human asset specificity
65
Explain the build, borrow, buy framework
Build-
Internal resource relevance, high= internal development
Greenfield investment, low=next
Borrow-
Borrow via contract-
franchising/licensing, resource tradability high=borrow via contract, low= next
Borrow via alliance- (joint ventures/equity alliance)
Desired closeness with resource partner, low= alliance, high= next
Buy- (M&A)
Feasibility of target for intergration high=acquisition, low=revisit build borrow buy options/redefine strategy
66
What are the reasons for M&As?
Reasons for acquisitions:
- Increased market power
- Overcoming entry barriers
- Decreased cost of new product development and increased speed to market
- Increased diversification
- Lower risk compared to developing new products
- Reshaping firms competitive scope
- Learning and developing new capabilities
67
What are the problems in achieving success in M&As
Problems with acquisitions:
- Integration difficulties
- Inadequate evaluation of target
- Large or extraordinary debt
- Inability to achieve synergies
- Too much diversification
- Problems focusing on core business
- Manager overly focused on acquisition
- Too large, rigidity
68
Types of acquisition integration approaches
- Preservation H/L
- Symbiosis H/H
- Holding L/L
- Absorption L/H
Need for organizational autonomy
Need for strategic interdependence
69
What are the 4 international strategies
- Global
- Transnational
- Home replication
- Multidomestic
Trade-off between need for local responsiveness and need for global integration
70
What are the 4 roles of subsidiaries?
- Black hole H/L
- Strategic leader H/H
- Implementer L/L
- Contributor L/H
Strategic importance of local environment
Competence of local organization
71
Name the 4 methods to mitigate / avoid agency problems
- Concentration of ownership
- Market for corporate control
- Board of directors
- Executive compensation
72
Name the components of the Ethics- and CSR triangle
CSR
Ethical behavior
Complying with laws and regulations
73
What are the obstacles against CSR?
Managers and employees behaviors and tolerance
Accumulated in-house practices
Convincing investors
74
What is a B corp?
A B corp is a company which has obtained official B corp status through its equal goals of sustainability and financial measures
75
ƒWhat is the difference between Strategic vs. Tactical actions/responses?
Strategic:
Significant commitment
Difficult to implement/reverse
Ex. major acquisition
Tactical:
Undertaken to "fine tune" strategy
Relatively easy to implement/reverse
Ex. Price cut
